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Investment Patterns in India
The document analyzes investment trends and policies in India. It finds that while domestic investment is rising due to government stimulus measures, public and private savings are not high enough. Foreign direct investment has grown steadily since the 1990s reforms, reaching $30 billion in 2009-2010, though India still lags China in FDI and infrastructure development. The document recommends improving infrastructure, developing skilled labor, enhancing special economic zones, strengthening intellectual property rights protection, and better coordinating central and state investment policies to attract more high-quality foreign investment to India.
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Investment Patterns in India
- 1. India | InvestmentPatterns Abhishek Anand | Kunal Ahuja Group 7 Amit Mirchandani | Nihit Jain Vaibhav Kukreja | Vaibhav Sathe
- 2. Agenda Problem statement Investment – definition & role India – Trends & Policies India – Lesson from China India - Recommendations
- 3. Problem Statement Toanalyze various forms of investment across two dimensions- trends and governing policies and suggest ways to improve FDI in India
- 4.
- 5. Investment Flow ofspending that adds to physical stock of capital over a given period 3 subsectors Business fixed investment- plants, machineries Residential investment- new house Inventory investment- new inventory Major Drivers- Monetary and fiscal policies Rental Cost of capital – interest rate, depreciation rate Expectations of Future Level of output Taxes- corporate income tax, Investment tax credit (affects rental cost of capital) Behavior and sentiments of various stakeholders – like Credit rationing
- 6. Forms of Investment Foreign Direct Investment Investment in enterprises Gives rise to MNCs Parent firm should own at least 10% shares Foreign Institutional Investment Investment in financial markets by foreign companies Typical investors – banks, insurance, mutual funds, hedge funds Domestic Investment Public, Private and Household Sector
- 7. Investment Need inIndia Generate sustained economic growth Create employment opportunities Multiplier Effect - Investment causes GDP to rise more than the spending Contribution of FDI Spill-over effect – technology, management techniques, skilled labour Improving quality of business environment Accumulation of productive capital for future growth
- 8. India | Trends &Policies
- 9. Domestic investment: Trends Buoying investments due to robust consumption demand Automobile, Power, Infrastructure and allied industries are witnessing major capacity addition Consumer durables pacing up the growth of industrial revival Although Public saving-investments balance are negative due to higher fiscal deficit Private saving-investments balance though on rise, are not sufficient The government measures intend to improve consumer confidence and effect Demand sharply. fiscal stimulus package tax cuts for producers easing of borrowing costs
- 10. Domestic Investment: Policies Budgetary Policy measures in small and medium enterprises (MSME): Enhancing allocation by US$ 535.8 million Increasing the limit for presumptive taxation Raising the threshold for compulsory auditing Extension of interest subvention for exports in certain sectors Exemption from capital gains tax to facilitate conversion of small businesses to limited liability partnership (LLP) format Other Policy Initiative Govt. approved six proposals for setting up of SEZs, tax-free zones, Food Parks, IT/ITeS tax-free zone State Investment Promotion Board (SIPB) of states like AP has approved fast tracked industries aiming to generate jobs SIPB has also announced to give nearly 50 per cent VAT/CST or SGST reimbursement for the next 5 years
- 11. FDI: Policies Priorto 1991, highly regulated environment Post liberalization, deregulated regime FERA amended and consolidated to FEMA FEMA: less stringent and investor friendly Consolidated FDI Policy 2010 - FDI permitted in almost all sectors
- 12. FDI: Policies Threeprimary institutions in India that handle FDI-related issues Foreign Investment Promotion Board (FIPB), the Secretariat for Industrial Assistance (SIA), and Foreign Investment Implementation Authority (FIIA) Two other institutions-Investment Commission and India Brand Equity Foundation also work for the same
- 13. FDI: Trends Grewsteadily through first half of 1990s Stagnated between 1996-97 and 2003-04 (3-5%) Grew at a rapid rate from 2004-05 to 2007-08 (7-9%) Reasons were liberal policies and growing domestic market of India Global recession slowed down FDI inflow growth in 2008-09 Following economic recovery, FDI inflows of $30.25 billion in 2009-10 Brown field investment more than green field
- 14. FDI: Trends Sector-wiseanalysis of FDI from 2001-2009 services sector 21% computer software and hardware telecommunications 50% 10% housing and real estate 7% construction activities 6% others 6%
- 15. FII: Policies Currentlimit of Foreign Institutional Investors (FII) investment in Government Securities increased by US $ 10 billion Current limit of FII investment in corporate bonds also increased to US $ 20 billion. Ceiling for overall investment by FIIs- 24% of the paid up capital of the Indian company.( 20% for PSUs)
- 16. FII: Trends Dramaticincrease in FII inflows to India over the period 2003-2007 Major reason- stock market rally that climaxed in January 2008 Recent global financial crisis saw FIIs pulling out a record $13 billion Recently, an explosive growth in FII’s on account of global economic recovery and high growth potential of India
- 17. India | Lesson fromChina
- 18. Highlights PARAMETER INDIA CHINA GDP USD 1.2 Trillion USD 7.8 Trillion GDP Growth Rate 6.7% 9.1% FDI USD 30 Billion USD 90 Billion Investment as % of GDP 31% 39.1% Human Development Index 0.612 0.772 Foreign Exchange Reserve USD 587 Billion USD 2.4 Trillion *2009 figures
- 19. China : Manufacturing Labor intensive growth, rooted in the end of collectivization of agriculture Huge focus on small scale rural industry Strongly linked to export Extensive infrastructure creation for support of manufacturing based economy Nearly 80% of world’s computer and related hardware is manufactured by Chinese companies
- 20. China : ForeignTrade 1600000 1400000 1200000 Millions of US $ 1000000 800000 Exports: Annual Imports: Annual 600000 Trade Balance: Annual 400000 200000 0 Source: www.site.securities.com
- 21. China : FDI China is the largest country with FDI inflows FDI now accounts for 15% of China's real estate market BRIC nations fall below China: Fixed Assets Investment: ytd the 7-10 days standard of 25000000 developed economies for new business starting 20000000 lead time Million RMB 15000000 (World Bank 2010 Report) COUNTRY NO. OF DAYS TO 10000000 OPEN NEW Fixed Assets BUSINESS FOR 5000000 Investment: ytd FOREIGN COMPANY 0 Brazil 166 days Jan-2010 Sep-2010 Jul-2010 Nov-2010 May-2010 Mar-2010 Russia 31 days India 46 days China 99 days
- 22. China : ForeignReserves 2500 2000 Billion US $ 1500 1000 Foreign Reserves: Annual 500 0
- 23. Regional Disparity India– State government policies – stability, SEZ impact Maharashtra, Gujarat, Karnataka and Andhra Pradesh attracting more U.P./Bihar less – Per capita income 50% below national average China Similar problem existed in Western China which was addressed by China Western Development Program Govt. initiated massive infrastructure investment in agriculture, technology, health and education Xinjiang GDP increased from 220 Billion RMB in 2004 to 430 Billion RMB in 2009
- 24. Why India lagsin FDI Poor state of India’s infrastructure Many towns and villages face daily blackouts averaging 8 hours a day Ports and airports lag when compared to world-class ports or airports Road network insufficient in India Acute labour market rigidities Lack of sufficient number of skilled labor
- 25.
- 26. Recommendations Uniform SEZdevelopment Establishment of SEZs in strategic locations Quality of FDI Inflows A large portion of the new inflows in the form of M&As. Does not necessarily imply new capital infusion Maximize spill-over benefits from FDI on a sustained basis Investment promotion strategy Effectiveness of Foreign Investment Implementation Authority (FIIA) to be enhanced
- 27. Recommendations Image brandingfor manufacturing Need to get rid of the tag that India can only do services and not manufacturing Government can play a significant role Workforce Quality Development Necessary to monitor the quality of students and of teachers in educational institutions Coordination between Union and States Efficient Financial Markets Development of a deep and liquid corporate debt market
- 28. Recommendations Intellectual Property Attracting greater FDI into R&D strengthens India’s technological prowess and competitiveness Inadequate safeguards for protection of IPRs cause a diversion of investment from technology intensive industries Hence, needs for strengthening intellectual property rights or IPRs
- 29.
Editor's Notes
- #8 Presence of FDI from powerful countries increasing stability and thereby improving the quality of the business environment
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